Current Expected Credit Loss (CECL)

In the aftermath of the 2007-2008 global financial crisis, regulators turned stridently critical of the methods used to calculate the provision for loan losses, which had come up woefully short. Consequently, they announced new rules such as the International Financial Reporting Standards 9 (IFRS 9) and current expected credit loss (CECL) to determine appropriate levels of balance sheet reserves needed for such losses. We believe these regulations would have widespread, deep and long-lasting impact on the banking industry... Read more >

The current expected credit loss (CECL) model is being touted as the biggest accounting change of the current decade. It will have a big impact on the capital management of most financial firms, the overall impact will be felt on a much bigger scale within organizations. The exact magnitude can be gauged only at the time of implementation, but the broader impact can be assessed at an organisation-wide level... Read more >

Implementing the current expected credit loss (CECL) model may seem challenging at first glance, but a structured approach can make the task easier. Any implementation would need changes at the enterprise level and approaches could vary from bank to bank depending on portfolio size and complexity...  Read more >

As an organisation-wide change, current expected credit loss (CECL) poses significant implementation challenges for financial institutions, such as: classification changes, modelling changes and operational challenges...  Read more >

The major players are wary about the impact of CECL on the banking industry. The ABA thinks that "...CECL poses a significant challenge for the banking industry. The life of loan loss concept presents complexities that can decrease capital, and add both volatility to allowance for loan and lease losses (ALLL) estimates, and additional costs. Further, it has the potential to change how banks do business."... Read more >

Most banks are now moving towards a centralised repository of data. With regulations such as CECL, challenges on the data front become manifold - not only does granularity become a challenge, but also the size and amount, which may require rescaling of legacy IT infrastructure at banks. Systems and controls need strengthening, too, to ensure that data quality is consistent... Read more >